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08.27.26
What is First-Party Fraud and Why Should Your Business Be Watching for It?
Most business owners picture fraud as an outsider’s game: a hacker, a stolen card number, someone impersonating the CEO in a late-night email. Those threats are real. But some of the costliest fraud a business faces doesn’t come from a stranger at all. It comes from someone you may already know.
That’s first party fraud: someone using their own real identity, or a relationship they genuinely have with your business, to squeeze out money they aren’t entitled to. It’s different from identity theft, where a criminal steals someone else’s information to open an account. Here, the person is exactly who they say they are. They just aren’t playing straight. That’s also why it’s so hard to catch on a statement or a report. Nothing looks fraudulent on the surface, because technically, the account really is theirs.
What it looks like in practice
A few common versions show up repeatedly for businesses.
- Chargeback fraud or “friendly fraud” – A customer buys something, then disputes the charge with their card issuer to get their money back, all while keeping the product. When a customer files a false dispute, gather evidence and submit a clear, organized rebuttal through your payment processor.
- Employee involvement - Sometimes an employee hands a fraudster the keys. If this is a result of phishing, then it's third-party fraud. However, occasionally an employee gives access on purpose, in exchange for a cut of what's stolen. To help prevent, utilize dual controls and role-based access.
- Vendor and invoice fraud - A vendor you already work with resubmits an old invoice, quietly inflates a bill or charges you for work that was never actually done. To limit potential loss, separate who can add a vendor, approve an invoice and release payment. Also, always double check if a vendor asks to change bank information that the update is legitmate.
Different situations, same pattern underneath. Someone your business already had a reason to trust decided to take advantage of that trust.
And it’s picking up speed
This isn’t a rare edge case anymore. Experian’s commercial data shows first-party fraud has been climbing steadily since mid-2024, after a calm stretch, with business leases, term loans, lines of credit and commercial cards all showing more of it.*
Merchants are seeing the same trend from a different angle. The 2026 Chargeback Field Report found that more than 83% of enterprise merchants have seen friendly fraud increase over the past three years, and nearly three in four call it a moderate or significant problem. About 61% report more chargebacks overall, and 38% say chargeback costs are already changing how they price. Small businesses were the least confident group in the survey, with only around 17% saying they felt well prepared to handle it.**
Some of this is just a byproduct of how much commerce has moved online. E-commerce now makes up nearly 17% of all U.S. retail sales*, higher than even the pandemic peak, and more digital transactions mean more chances for someone to stretch the truth on a legitimate account.
Why it costs more than the dollar amount
Say a customer disputes a $200 charge they agreed to. You lose $200, sure, but that’s rarely the whole bill. There’s usually a chargeback fee on top of it. Someone on your team spends an hour pulling receipts and shipping records to fight the dispute instead of doing their actual job. And if this kind of thing keeps happening, you may end up tightening screening in ways that slow down or annoy your honest customers.
None of that is inevitable. Most of it comes down to a handful of habits and the right controls on your accounts.
A few ways to close the gap
Split up who approves what.
If the same person can submit a payment and approve it, you have a gap. Requiring a second set of eyes, often called dual control, catches problems before money leaves the account.
Put your expense policy in writing and actually enforce it.
Require original receipts, a stated business purpose and manager sign-off above a set dollar amount. A policy that exists but never gets enforced won’t stop much of anything.
Let your account tools do some of the watching.
Check Payee Positive Pay compares the checks you actually issued against what’s presented for payment, and flags mismatches before they clear. With ACH Positive Pay, when an ACH debit is presented, it's compared against an authorized list. ACH Debit Block and Filters give you control over exactly who can pull your money from your account and how much.
Decide who’s allowed to move money.
Role-based access in your online banking platform means you choose who can initiate a payment and who must sign off on it, so no one person holds all the keys.
ACH/Wire limits
Typically these limits are set by your bank, but account owners may also request an even lower limit. This increases the chances of catching fraud as it's attempted.
Bring it up with your banker.
This isn’t a one-size-fits-all problem. Your Relationship Manager or Treasury Services team can look at how your business actually moves money and suggest which combination of ACH Positive Pay, Positive Pay, ACH controls and alerts makes sense for you.
First-party fraud stings a little differently because it usually involves someone you had no reason to doubt. But it’s also more preventable than most fraud, once you’ve got a second set of eyes on payments and a few basic controls turned on. That’s a trade worth making.
If you’d like to talk through fraud prevention options for your business, reach out to your Relationship Manager or contact our Treasury Services Support team at 877.920.6888, Monday through Friday from 8am to 5pm.